Photo: 7-Eleven, Inc.
How crucial is last mile fulfillment to 7-Eleven and the c-store channel?
A new study finds that 57 percent of all convenience retailers offer some form of last mile fulfillment and, when done correctly, it can pay off for stores in significant ways.
The study from NACS Research — “NACS Last Mile Fulfillment in Convenience Retail” — includes findings gleaned from 140 independent and chain operators, representing single-store operators to businesses with over 500 locations.
NACS definition of last mile fulfillment includes delivery orders as well as forms of pickup (curbside, in-store and lockers).
“Our findings show convenience retailers are employing a wide range of last mile fulfillment options with some being more popular than others,” said Lori Stillman, vice president of research at NACS, in a statement. “We also found that one third-party provider is being leveraged more so than others, while many locations are using their own staff for delivery.”
The trade association said suppliers have a role to play in helping retailers understand the value of looking beyond the four walls of their stores.
“There is an opportunity for suppliers to educate retailers on how last mile fulfillment can more effectively match products to changing consumer behaviors — like those that will have a lasting impact because of the COVID-19 pandemic,” said Ms. Stillman. “Additionally, third-party last mile service providers will see how the convenience landscape differs from other delivery and gain a better understanding of how QSR delivery both differs and compares to convenience retail.”
One retailer that has been aggressive in its pursuit of last mile fulfillment is 7-Eleven. The convenience store giant announced yesterday that it has added UberEats, Grubhub and Instacart as firms making deliveries for company-owned and franchised locations.
“When 7-Eleven began offering delivery in 2017, we certainly didn’t foresee a pandemic accelerating on-demand ordering platforms from convenient to essential,” said 7-Eleven COO Chris Tanco. “This year we’ve doubled our delivery footprint and quadrupled our daily delivery orders because customers know they can count on us for their necessities in about 30 minutes.”
Customers can order directly from local 7-Eleven stores using its 7Now delivery app or through any of the platforms that handle delivery for the chain. These include DoorDash, Favor in Texas, Google and Postmates, in addition to the three newly added services.
Discussion Questions
DISCUSSION QUESTIONS: How important is last mile fulfillment to the evolution of convenience stores? Where do you see the biggest opportunities and challenges facing convenience retailers implementing various forms of pickup and delivery services?
Poll
BrainTrust
Dave Bruno
Director, Retail Market Insights, Aptos
Zel Bianco
President, founder and CEO Interactive Edge
Last mile fulfillment is one of the most challenging aspects of online ordering and the greatest challenge to profitable transactions. Convenience stores have small staffs last mile fulfillment requires stores to allocate time and resources to pick, prep and potentially deliver online orders. These are time consuming and expensive tasks. Leveraging third-party providers can help, but the bottom line is that omnichannel orders need a surcharge or membership fee to make them profitable for convenience stores.
Depending on the c-store model, last mile fulfillment will be an important component of their future success model. For years c-stores have spent a lot of money and struggled with getting the consumer from the pump to enter the store. Now in many cases they are bringing the product to the home skipping the entire physical location. There appears to be a direct relationship between the c-stores’ ability, (and desire), to offer prepared foods and ready-to-eat meals and the success of adding last mile services. One should look to the strength of Casey’s pizza sales and Wawa’s food service models and see them as continued growth opportunities.
The clue is in the name – convenience stores are not only convenient for customers to visit but they are also convenient in being close to the customers and therefore able to deliver online orders quickly and efficiently without long distance distribution. If they get it right, it will be very important for the future and success of those convenience retailers. Unfortunately, it’s not easy to get it right all the time.
First, they must ensure that the quality of the delivery mechanism is good, whether that is using third parties or their own staff, and the experience for the customer has to be good. Second, they must get their inventory management right, so they do not impact their store sales or have stock outs for online customers. Finally, if they are selling short shelf life and fresh items, they have to make sure that the quality and freshness of the product is to the customer’s expectation.
For many independent retailers this is not so easy. However if the owner manager is on the spot and knows his store he should be able to do it well. The quality of store staff at convenience stores is often lower than at major stores which can make it difficult. Also stores need good inventory systems and operational discipline is necessary to get it right.
Obviously convenience stores need to expand last-mile options to keep up with consumer demands. The trick is doing so profitably, which is no easy feat. As of now it looks like the third-party providers are the best option, although I wonder if that model is financially sustainable as order volumes continue to increase.
One of the issues c-stores face is they typically have 3,500+ items. With that many items creating an app that is convenient for the customer to use is not easy. As you point out someone has to pay the cost of delivery, Either the c-store absorbs it or it has to be tacked on to the cost of the order.
The final issue c-stores face is the pirating of their customers by the third-party delivery service. After learning what customers wanted from c-store and the store’s pricing, etc. DoorDash opened it own DashMart to compete with c-stores. This is a variation of what Amazon does to its reseller.
I agree with David Naumann. This is an expensive proposition and if you had many other choices for delivery or pick up would you choose your local 7-Eleven? C-stores are great and they have become the hyper local “general store,” but I’d be hard pressed to find a category in a c-store that could not be fulfilled elsewhere.
Last-mile fulfillment and being competitive on speed by having speedy delivery of products makes sense for c-stores. If you look back to the original tagline of 7-Eleven, “Give the customers what they want, when and where they want it.” then you could say that customers in 2020 want it now and they want products at home and finding ways to do that with third-party delivery companies is a good strategy for c-store retailers. That said, there are some considerations that c-store retailers should think about:
From a loyalty and engagement perspective this is a win for c-stores. The issue, as it is in other classes of trade, is how to scale it profitably. I think this presents a bigger problem for c-stores where frequency is a key value proposition. These stores typically run on thin margins and very small staffs, adding this to their capabilities would be difficult. They’ll need a process to consolidate orders for efficiency, and there will be an impact on in-stocks. Using a third party is an option I’m sure they’re looking at, but that doesn’t solve the inventory issue. This might be an opportunity for small, localized fulfillment centers in high traffic, urban areas where demand will be heavy. That would take the pressure off the local store to have to manage additional capability and still offer customers the service they’re demanding.
As to the foodservice delivery piece: I think it’s instructive to look at Chipotle’s most current quarterly numbers. It shows revenues up 14 percent but the chain taking an earnings hit as it pays a 30 percent fee on orders delivered by Grubhub and UberEats.
First of all I think of “last mile” problems as being a seller issue, not a buyer issue. Logically, and functionally, driving to a store, shopping and driving home is identical — in terms of last mile solutions — to BOPIS, curbside pickup, etc. in that, in all those cases, the consumer is the “last mile” distribution agent. So if that is true, we should only be looking at cases where the seller — in this case c-stores — is the “last mile” distribution agent. What 7-Eleven has (potentially) done is simultaneously sweetened the value proposition from a consumer point of view, and outsourced the solution. That seems a viable approach. Hiring a kid to deliver a slice of pizza and a bag of Cheetos to some stoner at 4:00 a.m. doesn’t, at least not to me.
They’re called convenience stores for a reason, but the definition of convenience has irreversibly been changed during the pandemic as far as consumers are concerned! Last-mile fulfillment options like same-day delivery and one- or 2 two-hour delivery plus curbside pickup are now practically table stakes in retail. However just ask restaurant owners what using third-party delivery services have done to their bottom line. C-stores are not immune to this and as volumes increase, they will need to find alternative ways to compensate for the reduced profit from these services. Customers will continue to expect faster and faster delivery times so this problem is not going away. Costs will need to be managed, or other business areas will need to adjust to compensate.
7-Eleven Japan, the parent company, and other Japanese c-store chains have been accepting package deliveries for customers in the surrounding neighborhood for decades. Yes it does generate traffic. But remember American c-stores can be broken up into three very different businesses based on the level of friends/neighbors and strangers – it is based on the road/street they sit on. Next to a major highway – 90 percent strangers. On a state road – 40 percent strangers. On a local road or in an urban neighborhood 20 percent strangers. The package acceptance offering works best in the third category.
Since these are convenience stores, the ability to get products to consumers quickly is critical for them. Using storage lockers for product pickup or providing the opportunity to have someone bring your package out to you or getting it delivered to your home are all important last mile opportunities, especially since people are not out and about much right now. If the customers can’t come to you, you need to go to them.
It is interesting to note that third-party last-mile service providers (e.g. UberEats, DoorDash, Postmates) seem to have failed to capture this market during the pandemic – while Zoom became ubiquitous, despite having pretty strong competition. Is the value proposition of these third-party providers not compelling enough? As long as printing out a bunch of online orders and manually giving them to a sales associate for local deliveries is only marginally more painful (or costly) than using third-party providers, they will struggle in the face of this DIY competition.
It is crucial to the long-term health of c-stores. The challenge is efficiency and profitability. Not a big fan of third party services in terms of who actually owns the customer in this scenario. However, the economics may warrant the surrender of some control.
A related issue is the opportunity for c-stores to become BOPIS pick up points, which has the potential for customers to visit stores that they might not otherwise do.
Last-mile fulfillment is incredibly important for convenience stores. As others have pointed out — it’s right in the name. In order for a convenience store to be successful, it has to be convenient for customers to shop from them. Location is a big part of that, but local delivery, order-ahead options, and curbside pickup are an increasingly important part.
It will be challenging for convenience stores to be able to offer these services profitably. Grocery items have notoriously thin margins. Pick and pack operations involve additional labor expenses, which usually cannot be made up through higher prices for BOPIS services. In order for this to work, convenience stores will need to focus on prepared foods and other items that have higher profit margins.
Data around most-ordered products and a timeline showing the burst in market demand for c-store items is essential to having worthy perspective on the future of c-store last-mile.